Investing in mutual funds is considered an effective way to achieve financial goals. Systematic Invesment Plans (SIPs) are considered to be the most optimum way of getting exposure to mutual funds.
By investing a small amount of money into mutual funds of your choice every month, you can add value to your portfolio.
There are several advantages of opting for SIPs instead of a lump sum investment. These include rupee cost averaging and the convenience and ease of investing.
Advantages of SIP
1. Ease and convenience: It is convenient to invest in SIP instead of a lump sum investment. Investing ₹1,000 a month is far easier than coughing up ₹12,000 in one go. The auto-debit option frees you from the burden of remembering to make regular investments.
2. Rupee cost averaging: When you buy mutual fund units at different price points, you make the most of rupee cost averaging, which raises the chances of your profitability.
3. Financial discipline: SIPs also help you inculcate financial discipline in your investing habits.
To start an SIP, you need to take the following steps:
1. Visit the asset management company (AMC) or aggregator (such as Zerodha or Groww) to invest in a fund.
2. You need to complete the know your customer (KYC) process before starting to invest.
3. At the time of investing, you need to opt for SIP instead of a lump sum.
4. Fill a separate form for SIP, instructing your bank to allow regular debit from your bank account towards the purchase in the selected schemes. This may take the bank 7 to 30 days.
5. Choose the frequency (whether you want monthly or fortnightly) and number of SIPs (12 or 6) you want to go for. Mutual funds allow you to set up SIP for any period from 6 months onwards with no upper limit.
There could be a situation wherein you skip an SIP or two. What will happen in this case?
Can you stop an SIP?
Yes, you may stop an SIP for any reason whatsoever. You can do it at any point in time without penalty by submitting a written request. This may take anywhere from 7 to 30 days to come into effect.
Additionally, you can start another systematic investment plan, even in the same folio, even after the earlier plan has been discontinued. But bear in mind that this would be treated as a fresh SIP. Hence, some time may be required to set up the SIP all over again.
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